May Will Spin Off Payless Shoe Unit

CHICAGO —  May Department Stores Co. said Wednesday that it will spin off its Payless shoe store chain into a separate company, freeing the big retailer to concentrate on its more lucrative department stores.

As part of the plan, Payless ShoeSource Inc., the nation’s largest discount shoe retailer, will close or relocate about 450 of its nearly 4,600 stores, May said in a statement. Payless has 727 stores in California. A May spokesperson said the company has not yet determined which of its stores will be closed or moved.

To pay for one-time costs related to the moves, May will take a charge of about $70 million against fourth-quarter earnings.

“The spinoff will allow May to focus totally on operating its expanding department store business,” May Chairman David Farrell said. Its store chains include Lord & Taylor, Hecht’s, Foley’s, Robinsons-May and Filene’s.

Payless sells one of every five pairs of shoes sold in the United States, according to St. Louis-based May.

Profits at Payless have been under pressure because of competition from Wal-Mart Stores Inc. and other big discounters, industry analysts said. Spinning off Payless will free May from a distracting drag on its earnings, they said.

Investors applauded the move: May’s stock rose 62.5 cents to $43.25 on the New York Stock Exchange.

Payless, founded in 1956, has annual sales of about $2.3 billion and employs 25,000 people.

When May acquired Topeka, Kan.-based Payless for $175 million in 1979, it had about 758 stores. It currently has 4,557 stores in 49 states; Washington, D.C.; Puerto Rico; and the Virgin Islands.

“We believe that separating our two businesses into two independent companies is in the best interest of our share owners,” Farrell said in a statement.

“As a stand-alone company with our own common stock, we will be able to structure our incentive and benefits programs to reflect Payless’ earnings and equity performance more directly,” Payless Chairman Steven Douglass said.

Shares of the new company will be distributed to May shareholders in a distribution meant to be tax-free. May said it expects to complete the distribution in late spring.